RCEP will give birth to a new focus of global trade

The United Nations Conference on Trade and Development (UNCTAD) recently released a research report stating that the Regional Comprehensive Economic Partnership Agreement (RCEP), which will take effect on January 1, 2022, will create the world’s largest economic and trade zone.

According to the report, RCEP will become the world’s largest trade agreement based on the gross domestic product (GDP) of its member countries. In contrast, major regional trade agreements, such as the South American Common Market, the African Continental Free Trade Area, the European Union, and the United States-Mexico-Canada Agreement, have also increased their share of global GDP.

The analysis of the report pointed out that RCEP will have a huge impact on international trade. The economic scale of this emerging group and its trade vitality will make it a new center of gravity for global trade. Under the new crown pneumonia epidemic, the entry into force of RCEP will also help improve the ability of trade to resist risks.

The report proposes that tariff reduction is a central principle of RCEP, and its member states will gradually reduce tariffs to achieve trade liberalization. Many tariffs will be abolished immediately, and other tariffs will be gradually reduced within 20 years. Tariffs that are still in effect will be mainly limited to specific products in strategic sectors, such as agriculture and the automotive industry. In 2019, the trade volume between RCEP member countries has reached approximately US$2.3 trillion. The tariff reduction of the agreement will produce trade creation and trade diversion effects. Low tariffs will stimulate nearly US$17 billion in trade between member states and shift nearly US$25 billion in trade from non-member states to member states. At the same time, it will further promote RCEP. Nearly 2% of exports between member states are worth about 42 billion U.S. dollars.

The report believes that RCEP member states are expected to receive different degrees of dividends from the agreement. Tariff reductions are expected to have a higher trade impact on the group’s largest economy. Due to the trade diversion effect, Japan will benefit the most from RCEP tariff reductions, and its exports are expected to increase by approximately US$20 billion. The agreement will also have a substantial positive impact on exports from Australia, China, South Korea and New Zealand. Due to the negative trade diversion effect, RCEP’s tariff reductions may eventually reduce exports from Cambodia, Indonesia, the Philippines, and Vietnam. Part of the exports of these economies is expected to turn in a direction that is beneficial to other RCEP member states. In general, the entire area covered by the agreement will benefit from RCEP’s tariff preferences.

The report emphasizes that as the integration process of RCEP member states is further advanced, the effect of trade diversion may be magnified. This is a factor that should not be underestimated by non-RCEP member states.

Source: RCEP Chinese Network


Post time: Dec-29-2021